Falling oil prices rattle markets

Oil, energy stocks and commodity-linked currencies are falling after talks in Qatar between major producers to freeze oil output collapsed over the weekend.

The renewed volatility in the resources sector is damping appetite for equities more broadly — though the intense angst of earlier in the session has faded and this leaves perceived havens such as the yen and government bonds to pare initial gains.

Hopes for a deal to hold crude oil production at January’s level were scuppered by Saudi Arabia’s insistence that Iran, which had refused to participate in the freeze as it rebuilds oil exports after years of sanctions, should be part of any agreement.

Brent crude, the international benchmark, is off its session lows, helped by news of a strike by Kuwait’s energy workers, but is still down 3.8 per cent at $41.48 a barrel. West Texas Intermediate, the US marker, is 4.3 per cent lower at $38.64. Prices had been down as much as 7 per cent and 6.8 per cent, respectively.

“The failure of the Doha talks to agree anything serves to underscore the ongoing global supply/demand imbalance and which the fall-off in US shale oil output does little to correct,” said analysts at National Australia Bank.

Since hitting a 12-year low below $30 a barrel in January, the price of Brent has recovered by almost 50 per cent, partly on hopes that big oil producers would be able to reach some form of deal to tackle global oversupply.

The rebound had eased fears not just over the health of the resources sector but banks’ exposure to energy-linked loans. Higher oil prices had also reduced concerns among investors about the fiscal positions of oil producing nations and that some may need to sell financial assets to raise cash.

Consequently, the fallout from Doha has hit trader investor confidence — with energy sensitive assets in particular feeling the pain.

The pan-European Stoxx 600 equity index, which had been down more than 1 per cent, is off 0.3 per cent as the oil & gas sector sheds 2.5 per cent. In New York, the S&P 500 is losing 0.3 per cent to 2,075, supported by Morgan Stanley beating earnings estimates.